Office Market

Healthy Prospects But Still Room to Improve

The gradual recovery of the global economy means there is a glimmer of light for the office real-estate market in Asia. In fact, 2015 looks pretty optimistic. That’s all well and good, but what does that mean for you and your business? Of course, that very much depends on your specific objectives for the year ahead. But from a general perspective, fully optimising your real-estate portfolio should be a key priority in any business plan. To achieve that, it is essential to have a good handle on supply, demand and the “markets to watch.”

One “golden nugget” to take to the bank is that we are seeing more multinational companies poised for expansion in terms of both human resources and corporate acquisitions. That will naturally lead to an increasing need for space, keeping demand high and making entry levels somewhat challenging, particularly in terms of cost.

We have been in an environment of low-cost financing for some time. Many companies have also benefitted from the reduction in energy costs that occurred in mid-2014. Both factors are helping to reduce the cost structures of many companies and allowing companies to maintain or improve their profit margins. Such an improvement in corporate margins is a welcome sign, especially in a market where top-line growth expectations are only slightly positive.

What can “wise” companies do to improve their performance, and why are we optimistic? Yes, the macroeconomic environment plays a part, helping improve corporate performance. But cost management and cost consciousness are becoming the “new norm” in many organisations, and the drive to reduce operating costs is improving the situation significantly. We face rising rents in the region, and so more companies will look further afield to decentralised locations for cost savings, leading to smart consolidation that improves workplace utilisation and reduces cost exposure.

Another trend to expect in 2015 is for multinational occupiers to favour disposing real-estate assets that they own so they can divert capital to other business-investment options. Conversely, many domestic occupiers see real-estate acquisitions as an investment strategy, as well as an effective way to manage expenses, and so they are likely to increase their buying activity.

On the supply side, many of the markets in Asia are set to add less supply than their historical averages. In markets where new supply is limited, such as Hong Kong, we expect rental growth to be more pronounced. There are exceptions to this trend, though, with markets such as Chengdu, Bangkok and Ho Chi Minh City. They are all cities that are expected to see a significant increase in new supply, which will more than likely lead to flat rental environments.

Globally, many governments are still grappling with how to get economic growth on a consistant path, and will do their best to ensure that happens in 2015. Asia, still heavily dependent on exports, is set to benefit from any pickup in global growth. It is also important to note that domestic events such as the change in governments in India and Indonesia, the stimulus push in Japan and the careful management of China’s slowing yet robust growth are all likely to contribute to upward momentum in the region. That’s not to say everything is rosy. We must be mindful that Asia will not be immune to destabilising geopolitical issues globally, and may also see instances of such disruptive events within the region as well.

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"Conversely, many domestic occupiers see real-estate acquisitions as an investment strategy, as well as an effective way to manage expenses, and so they are likely to increase their buying activity. But not all Asian cities are capacity-constrained. Markets such as Chengdu, Bangkok and Ho Chi Minh City are all cities that are expected to see a significant increase in new supply, which will more than likely lead to flat rental environments."